Arrow agrees to $3.45bn offer

Brisbane’s
Arrow Energy
has agreed to a $3.45 billion sale to Royal Dutch Shell and PetroChina after the oil giants increased their offer by six per cent to buy out the Queensland coal seam gas company.

Shell and PetroChina raised its bid by 25c to $4.70 a share for Arrow’s Australian business after tabling an initial offer of $4.45 in cash earlier this month.

The bid represents a 35 per cent premium to Arrow’s last trading price and one month volume weighted average price on 8 March, when the initial offer of $4.45 a share was announced.

The initial bid was regarded by industry analysts as being too low. On Friday Royal Bank of Scotland raised its price target to $5.45 a share, including 55c for Arrow’s international business.

The demerger and proposed acquisition will take place under different schemes of arrangements.

Arrow Energy shareholders will receive one share in a new listed entity, Dart Energy, for each Arrow share and a separate cash payment for the acquisition of the Queensland coal-seam gas business if both schemes are approved.

Dart Energy will incorporate the bulk of the company’s demerged Australian and Asian exploration assets and be listed on the Australian Securities Exchange.

The new company will comprise Arrow’s stakes in Australian energy companies Apollo Gas, Bow Energy and Liquefied Natural Gas along with its international coal seam gas assets in China, India, Vietnam and Indonesia.

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Dart will also retain $45 million in cash, a US$25 million ($27.3 million) loan facility from Shell and farm-in rights to exploration licenses held by Apollo Gas in New South Wales while PetroChina will work with Dart to develop coal-seam gas opportunities in China.

Arrow’s current chief executive, Nick Davies, will assume the role of chairman in Dart Energy with Simon Potter to hold the role of chief executive in the new company.

New Hope
Coal is the largest shareholder in Arrow with a 17.7 per cent stake. The chairman of the company, Robert Millner, told The Australian Financial Review on Monday that New Hope would discuss the merits of the revised offer at a board meeting this afternoon.

New Hope will advise the market of its decision when it hands down its first half financial results tomorrow.

Arrow halted trading on Friday after a report in the AFR’s Street Talk column that it was close to striking an agreed deal with Shell and PetroChina at a higher price.

Shell and PetroChina plan to end Arrow’s involvement in the small Fisherman’s Landing liquefied natural gas project and redirect Arrow’s gas reserves into Shell’s more ambitious planned LNG development on Curtis Island near Gladstone in central Queensland.

“This transaction crystallises the value of more mature assets that have been built in Arrow’s Queensland business through the rigorous execution of our business strategy," said the chairman of Arrow Energy, John Reynolds.

The likely sale of Arrow will cap a meteoric rise for the company, which listed in August 2000 with a market capitalisation of $10.5 million and a share price of 20¢. In September 2006, it was trading at less than 60¢ a share.

Arrow said the offer will be subject to a review by Canberra’s Foreign Investment Review Board along with several Chinese regulatory approval conditions.

Arrow shares dropped by 3.6 per cent to $5.10 at 1pm on Monday after coming out of a trading halt at $5.29 on Friday.